Introduction
Pre-authorization in refers to the practice of obtaining approval from a customer’s payment card issuer before finalizing a transaction. When a customer makes a purchase using a credit or debit card, the merchant sends a request to the card issuer to verify that the customer’s account has sufficient funds or credit available to cover the transaction amount. This initial authorization, known as pre-authorization, reserves the specified funds on the customer’s account for a limited period, typically up to several days, to ensure they are available when the transaction is settled.
Pre- Authorization Process
The pre-authorization process involves the merchant submitting the transaction details, such as the card number, transaction amount, and merchant identification, to the card issuer for approval. Upon receiving the pre-authorization request, the card issuer verifies the customer’s account status and available credit or funds. If approved, the issuer reserves the specified amount on the customer’s account, reducing the available credit or funds by that amount until the transaction is settled. This temporary hold helps prevent the customer from spending the reserved funds elsewhere before the transaction is finalized.
Serves as Risk Management
Pre-authorization serves as a risk management tool for merchants, as it allows them to verify the validity of a customer’s payment card and the availability of funds before providing goods or services. By obtaining pre-authorization, merchants can reduce the risk of accepting payments from customers with insufficient funds or overextended credit limits. Additionally, pre-authorization can help prevent fraudulent transactions by confirming that the payment card is valid and has not been reported lost or stolen.
Pre-authorization impacts available credit
For customers, pre-authorization impacts their available credit or funds temporarily until the transaction is settled. It’s important for customers to be aware of these temporary holds, especially when using debit cards, as the reserved funds may affect their ability to make other purchases or withdrawals until the pre-authorization expires. Understanding the pre-authorization process can help customers manage their finances and avoid unexpected declines or overdrafts due to temporary holds on their accounts.
Conclusion
In conclusion, pre-authorization in merchant services plays a crucial role in verifying the validity of payment cards and ensuring the availability of funds or credit for transactions. By obtaining pre-authorization, merchants can mitigate the risk of accepting payments from customers with insufficient funds or fraudulent cards, while customers should be mindful of the temporary holds that pre-authorization may place on their accounts. Overall, pre-authorization contributes to the security and reliability of electronic payment transactions, benefiting both merchants and customers in the modern marketplace. Please note that this is only some basic information on Pre- authorization, for more information, call us at 310.826.7000.